WASHINGTON, D.C. – U.S. Sens. Sherrod Brown (D-OH) and David Vitter (R-LA) today applauded action by the U.S. Federal Reserve to establish a risk-based capital surcharge for “Too Big to Fail” financial institutions. Brown and Vitter called for further action to protect American taxpayers from another federal bailout of Wall Street banks:
“It’s encouraging that the U.S. is now leading – rather than following – when it comes to protecting the safety and soundness of our financial system. This is an important step in the right direction, but we must do more to ensure that banks have adequate capital to cover their losses,” Brown said.
“Even the pro-megabank Federal Reserve has finally acknowledged that the status quo is only allowing the problem of ‘too big to fail’ to continue. The Fed’s move today is a simple matter of common sense, and we’ll continue fighting to build on this and protect the taxpayers from financial risks. We still have a long way to go,” Vitter said.
Brown and Vitter are the sponsors of the Terminating Bailouts for Taxpayer Fairness Act (TBTF Act), bipartisan legislation which would ensure that financial institutions have adequate capital to protect against losses.
The bill would ensure that financial institutions have adequate capital to protect against losses. Specifically, the TBTF Act would:
Set reasonable capital standards that would vary depending on the size and complexity of the institution. Economic and financial experts agree that adequate capital is critical to financial stability, reducing the likelihood that an institution will fail and lowering the costs to the rest of the financial system and the economy if it does.
Limit the government safety net to traditional banking operations. When the government established the Federal Reserve in 1913 as a lender of last resort and created deposit insurance in response to the Depression, support was intended for commercial banks that provided savings products and loans to American consumers and businesses. At that time, most banks had enough shareholder equity equal to 15 to 20 percent of their assets. In the ensuing decades, the expanding federal safety net allowed financial institutions to depend less and less on their own capital. Federal support was stretched far beyond its original focus, particularly when financial institutions were permitted to enter into the business of insurance, securities dealing, and investment banking. Brown and Vitter’s bill would limit the government safety net to traditional banking operations, protecting commercial banks rather than risky, investment banking activities.
Provide regulatory relief for community banks. By reducing regulatory burdens upon community banks, they can better compete with mega institutions. Because community institutions do not have large compliance departments like Wall Street institutions, this legislation provides commonsense measures to lessen the load on our local banks.